AHFC loans to increase to ₹2.5 trillion by FY28-end: Icra report

Domestic rating agency Icra on Wednesday said affordable housing finance companies' (AHFC) assets under management are set to rise to ₹2.5 trillion, from ₹1.4 trillion, in the next three years.

It said non-bank lenders' mortgage portfolio is set to touch ₹20 trillion by March 2028, from ₹13 trillion in March 2025.

The retail mortgage loan growth will be driven by robust demand and the restricted availability of alternative credit options due to ongoing issues with unsecured lending, the agency's co-group head for financial sector ratings, A M Karthik, said.

He added that the sector has traditionally demonstrated strong performance, marked by low loan losses and healthy business returns.

The housing finance companies accounted for two-thirds of the overall mortgage loans, while affordable HFCs constituted 11 per cent of the overall assets under management (AUM).

The agency said the AHFCs have a higher share of self-employed borrowers and loans against property in their portfolio compared to other large HFCs focused on the prime borrower segments. 

The AHFCs have a sizeable share of smaller ticket loans, and their AUM growth has been quite steep in the recent past, resulting in low portfolio seasoning, it added.

Given their business model, AHFCs need an extensive network of branches and staff to manage loan origination and handle collections in case of overdues, Karthik said, recommending sustained stability in operations and prudence in credit policies as desirable for the segment.

The non-performing assets (NPAs) of the AHFCs have remained under control at 1.1-1.3 per cent over the last three years, with average credit cost as proportion of average managed assets being around 0.3 per cent over this period.

An average Loan-to-Value (LTV) of around 55 per cent and 40 per cent of the AUM being devoted to self-construction of homes is expected to keep its credit quality under control for AHFCs, it said.

Healthy business margins and low credit cost support AHFC earnings with their return on average managed assets at 3.5-3.6 per cent, even as their operating costs remain elevated compared to their prime loans-focused peers, the agency said.

"Competitive pressures, however, will increase steadily going forward from larger players, making improvement in operating efficiency critical when yields moderate and margins shrink with steady increase in leverage," it said.